Editor’s note: I (Marc Chaikin) have known Greg Diamond for years now. And in many ways, we’re cut from the same cloth…
Greg is a “technicals” guy like me. And he’s one of the smartest folks I’ve ever come across.
Before joining our corporate affiliate Stansberry Research, Greg worked in the highest levels of finance…
He traded for a multibillion-dollar hedge fund. And he worked as the head trader of a multibillion-dollar pension fund. At one point in his Wall Street career, he traded up to $900 million per day.
Today’s essay comes from one of Greg’s recent Weekly Market Outlook issues for his Ten Stock Trader subscribers. In it, he shares an important message on his investing mindset.
It’s a great way for you to prepare for a special, FREE message that Greg and I will release later this morning. Be sure to read to the end of the essay to find out how you can join us.
Take it away, Greg…
Back in high school, I lived for competitive sports…
Growing up in North Carolina, basketball was everything. I played all four years. Our team made it to the playoffs against many athletes who went on to play professionally.
While competing against these future pros, everyone said we weren’t good enough. The best part was, we often proved them wrong.
That taught me to ignore the critics. And it convinced me that I could succeed at anything.
But that mindset was also critical during the basketball offseason…
No matter how much I practiced shooting, dribbling, and passing, there was nothing like competing. So in my junior year, the track and field coach (who had seen me play basketball) advised me to consider running hurdles.
The races were intense. With a lot of training, I got into great shape and became faster than ever.
Most of all, though, running hurdles took my competitive mindset to the next level…
You see, the first two hurdles are the most important. You need to perfect the sequence of steps and the speed required to jump over the first hurdle and then prepare for the second.
If you jump too soon, you could land in an awkward position and take longer to prepare for the second hurdle. If you jump too late, you risk hitting the hurdle, which could cause you to lose the race.
But once you get in a good rhythm across several hurdles, that can guide you the rest of the way.
It’s a largely individual sport. So the right mindset is more vital than ever. After all, in many ways, you’re competing against yourself.
In that sense (and others), running hurdles is like trading…
Strategy, preparation, and discipline are crucial. And as I’ll explain today, the techniques that drive success in running hurdles can also help you become a better investor…
One of my first bosses made this same comparison years ago. Given my experience with the sport, the idea that running hurdles is like trading resonated with me instantly.
Now, trading is a continuous learning experience – it doesn’t end at a finish line. But it’s still important to clear the first few “hurdles,” as they often present some of the toughest challenges.
We can do that by building a focused trading mindset. That means applying a sound investment strategy… preparing for different market conditions… and remaining disciplined, time and time again. (This approach also makes it easier to overcome future hurdles.)
Here are three specific steps to creating a successful mindset…
- Execute a sound trading strategy.
Your strategy must help you determine when to trade, how much to trade, and when to take profits. This strategy should also dictate when you’ll add or cut a position.
- Understand that losing is part of the process.
No trader gets every single trade right. That’s why risk management is so important. It helps to preserve your capital and minimize the losses you take.
To do that, you must set favorable reward-to-risk ratios and use reasonable position sizing.
Don’t underestimate risk management. These principles can make or break your trading career.
- Keep your emotions in check.
We all have emotional responses to the events in our lives. Successful trading requires you to always control them (rather than ignore them).
Don’t let emotions rule your trading decisions. And don’t let trading rule your emotions, either.
Effective risk-management principles can help negate emotional responses when things go wrong.
Although trading presents many hurdles, these three are probably the most important. Once you overcome them, the rest of the “race” becomes easier to complete – and eventually win.
But that takes time…
You need to study market moves and learn how you react to them. Sometimes it’s frustrating. Other times, it’s pure joy.
Within that process, I recommend writing everything down in a journal.
It’s a lot of work, and it may sound silly. But hear me out…
Every day (and I mean every day), write down the trades you executed. If you didn’t trade, write down what you’re considering trading or what stocks you already own. Decide exactly what you want to do (or not do) with those positions.
Write down whether you followed your investment and risk-management strategies. Also describe what made you happy or angry in that process.
Don’t hold anything back.
No one else will read this journal, so write down exactly what you think and feel. Be your own worst critic. And be completely honest with yourself.
This will help to clarify your thought process, emotions, and ultimately, your relationship with investing. Over time, you’ll learn how you respond to both good and bad days in the market. And when you look back, you’ll see how you’ve grown.
Give it a shot for six months and see what you discover.
You’ll likely find that it makes a big difference to focus on honing your trader’s mindset. By doing that, we can use behavioral finance (the study of how psychological influences can affect market outcomes) to our advantage.
Few people talk about this aspect of trading, but it’s very important.
So let’s continue cultivating a strong mindset to overcome the hurdles we’re bound to face. And remember, we can do anything we set our minds to – regardless of the critics.
Greg Diamond, CMT
Editor’s note: Greg called the March 2020 crash three months before it began. He predicted a downturn in 2022. And he even called for a rally in 2023 (nailing the market bottom within 24 hours).
Even better, every time Greg has made a major call like this, investors have had the chance to double their money – not just once, but five to 10 different times.
That’s why I teamed up with him as part of his urgent new warning for February 14, 2024. If you have any money in the markets, make sure you hear what he has to say.
Our message will go live at 10 a.m. Eastern time today. Get all the details right here.